Asset Manager Pair Trade? JPMorgan Ups CME, Downgrades Janus

Janus Capital Group Inc JNS and CME Group Inc CME received a pair trade from JPMorgan on Wednesday. The firm upgraded CME and downgraded Janus.

"We adjust two companies' ratings within our portfolio of stocks to increase exposure to volatility-based businesses on our view that volatility will be elevated in 2016. We reduce exposure to the asset managers, which despite being oversold, in our opinion, have both industry secular and company-specific idiosyncratic risks," the firm noted.

JPMorgan saw consistency with this view and upgraded CME to Overweight with a $96.00 price target and downgraded Janus to Neutral with a $15.00 price target.

"We think a theme for 2016 is for volatility to remain elevated. Current uncertainty about interest rates and China is widespread and each seems to have potential to drive volatility for the investible future," JPMorgan said in a research note.

In addition to volatility, analysts believes asset managers will be "subject to meaningful declines in earnings revisions" if current market levels fair to recover quickly. "Investors seem correct to remain concerned about the threat to active management by passive investing, which we have seen intensifying and broadening over the last six months, to the detriment of most of the publicly traded asset managers," the firm commented.

JPMorgan sees CME's current dividend yield of 5 percent as delivering support for the stock at $83 on current earnings. The firm sees CME's upside to $96 based on their 2017 forecast.

Analysts value Janus at 13x (prev. 14.5x) their new 2017 estimate of $1.11 plus the net impact of seed capital, cash and investments.